Staying the course
Turkish Airlines is sticking by its ambitious growth plans despite falling victim to a major terrorist attack in June. Martin Rivers talks to chief executive Temel Kotil.
The triple suicide bombing of Istanbul Ataturk Airport in June was a grim but predictable escalation of the security crisis in Turkey – a country fighting terrorism on two fronts while also grappling with political upheaval at home and a burgeoning refugee disaster.
That the airport made an attractive target for suspected Daesh militants should come as no surprise. The Syria-based jihadists had already struck tourists twice in Istanbul this year, sending suicide bombers to kill mostly German and Israeli holidaymakers at two of the city’s most popular attractions in January and March.
Dozens more Turkish citizens have been killed in attacks across the country as Daesh and Kurdish militant groups seek to destabilise the government of Recep Tayyip Erdogan.
For flag-carrier Turkish Airlines, which has transformed Ataturk Airport into one of the world’s largest intercontinental hubs, the violence threatens to derail years of phenomenal growth matched only by the Persian Gulf carriers.
The airline had already posted its worst quarterly loss since 1999 at the beginning of the year, sinking 1.24 billion lira ($421 million) into the red as tourists thought twice about booking holidays in Turkey. The exodus continued in May, with 35% fewer arrivals to the country than in the same month in 2015. Tourism figures for June had not been released at the time of writing, though the murder of 45 travellers in Turkey’s main airport will only have accelerated the downturn.
With shares in Turkish Airlines down 20% this year, it is hard to put a positive slant on the flag-carrier’s predicament.
If there is one man who can muster a smile on just about any occasion, though, it is Temel Kotil, the airline’s ever-affable chief executive. Speaking just days before the attack on Ataturk Airport, he predicted that the headwinds will pass and Turkish Airlines will continue its seemingly unstoppable march of expansion.
“For us, growth is a must. If I don’t have new frequencies … the rest of the destinations we are serving become hungry,” he said.
“What we are doing the last ten-plus years is putting a massive network together. The purpose is actually, if anything goes bad, then we can rely on the rest of the network. Right now Africa is booming, but the Chinese and Japanese and Koreans are not travelling that much anymore … So we substitute Asian traffic with the Middle East, we substitute with Africa.”
Kotil drew parallels with 2011, when Turkish Airlines rapidly expanded its long-haul fleet despite waves of political unrest spreading across the Arab world. Worrying first-half results that year eventually gave way to an annual profit – albeit a razor-thin one of $6.9 million (19 million lira) – and the airline chief expects much the same story to unfold in 2016.
Even as he seeks to reassure the market, however, Kotil is adjusting to new realities on the financial front.
The airline was already braced for lower fares this year even before the airport attack, with demand falling behind its year-on-year capacity growth of 18%. Yield pressure will now intensify as sixth-freedom traffic rises from 50% to 60% of the business – cementing the flag-carrier’s evolution into a Gulf-style operator heavily dependent on transfer traffic.
“Ten point increase means that we are being a real global player,” Kotil said. “But the yield goes down by nature.”
Although Turkish Airlines is often lumped in with Emirates, Etihad and Qatar Airways in discussions about connecting traffic, the flag-carrier actually has a more nuanced proposition than its Gulf counterparts.
The vast size of Turkey’s home market is one distinguishing feature. Whereas the United Arab Emirates and Qatar have modest populations and even less territory, Turkey’s 79 million citizens are spread across 770,000 square kilometres of land. Rising living standards have fuelled an explosion in domestic air travel, with 97 million people taking to the skies for internal flights last year alone – a lucrative market that Turkish Airlines shares with local rivals Pegasus Airlines, Onur Air, Borajet and Atlasglobal.
The country’s world-famous cultural attractions and seaside resorts also make inbound tourism more of a factor for Turkish Airlines than for the Gulf players. About 36 million foreigners visited Turkey in 2015, versus 14 million for Dubai.
Until recently, Russians had been the second largest contingent of tourists in the country behind Germans. Their prominence came to an abrupt halt last November, when Ankara shot down a Russian warplane near the Syrian border and Moscow responded by banning charter holidays to all Turkish resorts. A belated apology by President Erdogan saw the restrictions wound down in June, though it is too early to know if Russians holidaymakers will return in the same numbers as before.
Falling tourism from North Asia is another concern. Japanese travellers have been particularly sensitive to the terror threat in Europe, prompting Turkish Airlines to halve its Tokyo frequencies this summer.
Emphasising that other markets have shown more promise, Kotil highlighted this summer’s route launches to Bogota in Colombia (continuing to Panama City), Atlanta in the USA, and Hanoi in Vietnam.
“Demand over the Atlantic is doing very well. Bogota is perfect,” he enthused. “The fares are very suitable from Istanbul to Bogota. I am even getting the passengers connecting through Istanbul from Spain … There is direct connection from Spain to Bogota, but Turkish product is very good and price is very good. There will be more routes in the US – we have nine, more will come but not decided which ones yet – and more in Asia Pacific too.”
Other additions to the network over the past 12 months include Miami in the USA, Dubrovnik in Croatia, Kosice in Slovakia, Khujand in Tajikistan, Maputo in Mozambique, Durban in South Africa, and Port Louis in Mauritius (continuing to Antananarivo in Madagascar).
While the steady drumbeat of growth looks set continue – Conakry in Guinea and the Seychelles are also coming on-stream this year – Kotil admitted that his focus is shifting from new destinations to higher frequencies.
“In terms of routes the company is really developed,” he said. “Don’t expect us every year to launch 20 more routes.”
About 30 separate announcements of frequency hikes were published on the airline’s website during the first half of the year, and Kotil is already mapping out his next targets. Addis Ababa in Ethiopia, Khartoum in Sudan, and Mogadishu in Somalia will all be doubled to twice daily services in summer 2017, he confirmed, underscoring the flag-carrier’s steadfast commitment to Africa.
Talks are even under way with Ethiopian Airlines about a joint venture aimed at tying up the Istanbul and Addis Ababa hubs – one of several partnerships on the table. “We are really open for the joint ventures with so many airlines, and hopefully we get to them,” Kotil said. “We need these route-based joint ventures … They can cover the trunk routes and the rest of the network by feeding each other. We started discussions with LOT Polish already and Ethiopian is the second one we are considering.”
However, he rejected media reports suggesting that Turkish Airlines might help to revive Bosnia’s defunct flag-carrier, B&H Airlines, insisting: “There are no talks about that right now. There is no activity there.”
On the fleet side, Turkish Airlines presently deploys 293 aircraft in its mainline operation. About one-third of those planes are wide-bodies: 58 Airbus A330s, including eight freighters; 32 Boeing 777-300ERs; three A310s; and one A340. Its narrow-body fleet is split – marginally in Airbus’s favour – between A320-family jets and 737s.
Interestingly, just three of the 183 aircraft currently on order are long-haul passenger jets. With the last of those units arriving early next year, the flag-carrier is overdue for making a decision about its wide-body requirements.
“There could be an additional order,” Kotil said coyly. “But not decided yet.”
Two weeks before the despicable attack on Ataturk Airport, local media reported that construction of Istanbul’s New Airport – the future home of Turkish Airlines – is 27% complete. The gateway will initially have an annual capacity of 90 million passengers, rising to 150 million in subsequent stages of development. Its planned opening in February 2018 will begin the next chapter of Turkey’s extraordinary aviation story.
Though shaken by the atrocity that befell travellers in June, Istanbul’s vision of becoming the epicentre of global aviation moves closer to reality with each passing day.